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Hey eBay, Say Hello to Bonanzle

The first Saturday morning of each month, licensed auctioneer Walt Kolenda holds live auctions on the Web. Buyers usually show up early to inspect the goods and ask "Auction Wally" questions through a live chat window. From the comfort of his home in Barre, Mass., Kolenda calls the action over a real-time podcast, taking bidders, offering bundle deals, and calling attention to the rarity of a set of antique postcards or the craftsmanship of a piece of ornate glassware.

Like many thrift stores and estate sellers, Kolenda has benefited from strapped consumers, many of whom have cleaned out their attics in search of valuables that might help pay the bills. "I can't keep up with what I'm doing because so many people are coming to me looking for advice on how to sell their items," Kolenda says.

The first advice he gives most sellers: Leave eBay (EBAY). Since 1999, Kolenda relied on the popular site that pioneered online auctions. But he says changes eBay made to its platform in recent years have hampered the ability of smaller sellers like him to compete with larger wholesalers who use the site as a clearinghouse to sell large amounts of goods at fixed prices. "Now, they want to be a big box [store]," Kolenda says. The changes that turned him away include higher fees for listing each item, the removal of a feature that allowed sellers to negatively rate buyers, and the elimination of all transaction methods other than PayPal, a payment service eBay owns.

Built-In Chat Feature

In September, Kolenda set up shop at Bonanzle, one of several niche online marketplaces that have sprung up to serve the growing number of online merchants who are leaving eBay out of frustration. Bonanzle was launched in June 2008 by Seattle computer programmer Bill Harding, who wanted to re-create the social dealmaking experience of a garage sale online. Anyone can sign up for a free Bonanzle "booth," a page where a seller displays items and interacts with visitors using a built-in chat feature. Sellers can easily reward good customers with markdowns, or hold regular "bonanzas"—events where all of their products are on sale.

Relying just on word-of-mouth buzz, the site has attracted some 35,000 registered users, a number Harding says has grown about 50% each month. Bonanzle collects small fees from each item that's sold—the company takes $1 for items that sell at an average price of $28.50, for example—and the site has facilitated tens of thousands of transactions so far. In February, Bonanzle says it turned its first profit, although it won't reveal how much.

By comparison, eBay posted its first-ever quarterly sales decline in January, when CEO John Donahoe admitted that he was "frustrated" with the performance of the business despite making several major changes to the site. Its fourth-quarter earnings report cited a 4% gain in active users over the previous year, to 86.3 million. But reader comments to a Jan. 22 BusinessWeek article, "eBay Sales: Going, Going…" told a different story. More than 200 current and former eBay sellers stated that they were abandoning the site because of the changes Donahoe has made.

Flight to Niche Players

Usher Lieberman, an eBay spokesman, says the company works to incorporate feedback from its members into the site, but admits that the changes of the past year were geared toward larger sellers. When asked about Bonanzle, Lieberman says that "while there will always be niche marketplaces, ultimately our volume and velocity keep sellers turning to eBay while our value and selection continue to attract buyers in a virtuous cycle."

According to Scot Wingo, CEO of e-commerce consultant ChannelAdvisor, the flight of eBay sellers to smaller marketplace sites like Bonanzle, niche players like handmade-goods site Etsy, and sellers' own personal Web sites could pose a threat to eBay's dominance. "If eBay doesn't change course, certain categories like collectibles, autos, handmade items, can definitely be dominated by niche sites," says Wingo.

Harding confirms that a large chunk of Bonanzle vendors came to his site because they were unhappy with eBay. "The biggest complaint is that they're not listening to their sellers," Harding says of the competitor. He and his co-founder, Mark Dorsey, spend much of their time reading and commenting on Bonanzle's forums, helping address user concerns, and reaching out to sellers directly whenever problems arise. The site also has a tool that allows new sellers to quickly import their product listings from eBay. So far, that tool accounts for half of all inventory listed on Bonanzle.

Charged for Sales, Not Listings

"The money it costs me to sell on Bonanzle is about a third of what eBay costs," says auctioneer Kolenda. That's mainly because Bonanzle only charges its sellers a percentage of what they sell, rather than for every item they list, as eBay does. Kolenda says Bonanzle also makes it easier to list a large number of items, saving him valuable time. Lieberman, the eBay spokesman, says the company opens "access to a global market for sellers who otherwise would have difficulty addressing a broader audience."

Of course, while profit margins and convenience are high, the slow trickle of shoppers to Bonanzle booths leaves much to be desired. "The traffic isn't there yet," says Chris Nelson, an Albany (N.Y.) online seller of jewelry, cosmetics, and New Age gifts such as tarot cards. Since December, Nelson has listed items on both Bonanzle and eBay. So far, she's sold only two items on Bonanzle vs. more than 200 on eBay during the same period. "It's not costing me anything to list [on Bonanzle]," Nelson says. "It's worth it to be there as that site starts to grow, and hopefully they will."

In January, Bonanzle received 185,000 unique visitors, according to data from comScore (SCOR)—peanuts compared to the 72 million that visited eBay. But since November, Bonanzle's traffic has grown 214%, while eBay inched up by less than 1%. One way Harding intends to increase traffic is by working with other product listing sites, such as Google (GOOG) Base. The search engine's classified listing service allows Bonanzle—and eBay—sellers to co-list their items on its pages, dramatically increasing the number of potential buyers. The Google site is a relatively easy process, but still not simple for everyone, and Bonanzle co-founder Dorsey has offered to personally set up some users with Google Base listings. Harding says about half of all traffic to Bonanzle comes through Google Base.

Loyal Band of Users

But perhaps Bonanzle's greatest growth potential lies in the evangelism of its small community of dedicated users. "The sellers have adopted [Bonanzle] as their own Web site, as if they created it themselves," says Harding. "In a sense, they have." That could be a line straight out of the pitch of an e-commerce startup from the 1990s: eBay.